Growth forecast as Diageo sees Africa as biggest emerging market

The maker of Guinness, Smithwick’s, Bushmills, and Bailey’s said its annual growth in Africa is set to accelerate beyond the current 15%, helped by its zero-duty Senator keg beer in Kenya and a strong rise sales of Johnnie Walker and Smirnoff.

Africa is Diageo’s biggest emerging market region, and vies with Latin America to be its fastest-growing, with economic growth accelerating in much of the continent and with its population of 1bn set to double by 2050.

“We are seeing more people with more money to spend, and with these drivers of growth in place we expect overall growth to accelerate,” said Diageo’s Africa president Nick Blazquez.

The continent provides 14% of Diageo’s group sales and the region has seen annual sales rise 15% over the last five years. Mr Blazquez is optimistic for more growth, with seven of the world’s 10 fastest-growing economies in Africa.

“Africa provides us with a great growth opportunity, while western Europe and North America are more difficult. We would expect spirits to grow faster than beer,” he said.

The growth will help the group expand the proportion of its sales it makes in emerging markets — chief executive Paul Walsh set a target to get half its sales from these fast-growing markets by 2015 from around 38% currently.

Some 80% of Diageo’s Africa business comes from Nigeria, South Africa and East Africa, and Mr Blazquez is keen to enter new markets such as Angola, Mozambique and the Democratic Republic of Congo with sales of spirits set to grow faster than beer.

Spirits growth has outpaced that of beer, helped by the introduction of small bottles of spirits aimed at cash-constrained consumers, which has helped Diageo grab a 40% share of the international spirits market in Africa.

However, beer was the foundation of Diageo’s business in Africa. Its Guinness beer first arrived on the continent with a shipment to Sierra Leone in 1827, while it built its first brewery outside Ireland and Britain in Nigeria in 1963.

Around 70% of its Africa business is in beer, with Guinness the number two in Africa to SABMiller’s Carling Black Label in terms of sales value. It is expanding, with Guinness brewed in South Africa since last November.

Beer growth is being led by Senator keg, which was introduced in Kenya six years ago by Diageo’s 50% controlled East African Breweries at a fifth of the price of its mainstream beer Tusker, and has grown to account for over 40% of the Kenyan beer market.

With the Kenyan market, where East African Breweries has a 97% market share, bedeviled by cheap illicit beer which has caused illness and, in many cases, death, the Kenyan government agreed to waive excise duty in return for a cheap and safe product which uses local barley and sorghum.

Diageo was able to cut the price due to the zero duty, the use of cheaper local grains, and by selling the beer from large kegs rather than expensive bottles.

— Reuters